When Are Housing Prices Dropping? 6 Market Signals You Shouldn't Miss

The average U.S. home price stands at $363,505 as of September 2025, though some markets command significantly higher values. For buyers eyeing competitive areas, understanding when housing prices are dropping could mean the difference between overpaying and securing a deal. Here are six critical signals that suggest a housing market correction is imminent.

Economic Headwinds Come First

Before any visible market shift, economic trouble signals trouble ahead. “When a region experiences major layoffs, business closures, or economic slowdowns, fewer people can afford to buy homes,” explained real estate expert Stephen Mendiola. “This directly reduces demand, which inevitably leads to falling prices.” Local employment trends and business health serve as the earliest warning system for where housing prices may drop next.

Watch for Growing Days on Market

One of the most reliable indicators that housing prices are dropping is how long homes linger for sale. “If the average days on market has been increasing over the last three to six months, it typically signals that asking prices are too high and a market correction is necessary,” said Holden Andrews, founder of Helpful Home Group. Properties sitting longer mean sellers must eventually accept lower offers.

Rising Inventory Without Rising Sales

In a healthy market, more available homes attract more buyers. But when supply climbs without matching demand, trouble brews. “When inventory increases while days on market rise simultaneously, the market becomes primed for correction,” Andrews noted. “The issue is that the market isn’t absorbing the added supply, so prices must adjust downward until equilibrium returns.”

The Gap Between List Price and Actual Sales Price Widens

Don’t just look at asking prices—compare them to what homes actually sell for. “This metric directly correlates with days on market,” said Casey TeVault, Realtor and founder of Casey Buys Houses. “Longer market times force sellers to make multiple price reductions, creating a visible gap between initial listing and final sale price.”

Distressed Sales and Foreclosures Pressure the Whole Market

When foreclosures or short sales spike, they pull down the entire neighborhood’s value ceiling. “Rising foreclosure filings and distressed property sales reveal financial stress among homeowners,” Mendiola explained. “As banks and struggling sellers list homes at depressed prices, it creates downward momentum affecting all comparable properties nearby.”

Institutional Investors Begin Mass Selling

Large-scale investor exits often precede broader market declines. “When institutional investors or major real estate firms begin liquidating properties in volume, they’re typically anticipating declining values,” Mendiola said. “This bulk supply flooding into the market accelerates price deterioration across the area.”

Understanding these signals helps prospective buyers recognize when housing prices are dropping and position themselves strategically in the market cycle.